The government of British Columbia announced today a new program to help first-time home owners buy property.
Under the BC Home Owner Mortgage and Equity Partnership Program, the BC government will match the down payment funds of eligible first time buyers for up to five per cent of the purchase price, up to a maximum of $37,500, which will be registered as a second mortgage for a term of up to 25 years.
“This is a necessary program which will assist many first time home buyers to enter the housing market at a time when housing affordability is a serious challenge. This program will provide tangible, necessary assistance which will facilitate the purchase of first homes for many BC residents struggling to save sufficient funds for a property down payment,” Gale told Mortgage Broker News. “There are many potential buyers in BC who simply cannot afford to buy a home because they do not have the necessary down payment saved, despite having sufficient income to qualify for their mortgage payments.”
For the first five years of the second mortgage, there are no payments due of either principal or interest. The payments begin in the sixth year of the second mortgage and is amortized over the remaining 20 years with an interest rate that is set at the same time the first year the mortgage is registered. The interest rate will be .5 per cent more than the current RBC 5-year rate and then reset at years 10, 15, and 20. Homeowners may repay the second mortgage in full or in part at any time without penalty.
“We find that most potential buyers are aiming to put down on a property purchase either the minimum 5% for an insured mortgage or 20%, so that their mortgage is conventional with no CMHC fees. We at the CMBA, believe that the borrowers who are aiming to put 5% down are the ones whom this program is likely to benefit the most,” Gale said.
According to Premier Christy Clark, the program will be funded in part by the 15 per cent foreign homebuyers' tax as well as a luxury tax on homes priced at more than $2 million.
For prospective home buyers to qualify, all applicants who are to be registered on title have to meet the following qualifications and must:
- Reside in the home
- Be a first-time home buyer
- Be a Canadian citizen or permanent resident for five years
- Have resided in BC for at least one year
- Have a combined gross income of $150,000 or less
- Have saved at least half of the minimum down payment they will require, and
- Be pre-approved for a mortgage before applying. Brokers should treat the second mortgage as a non-traditional source of down payment.
There are also requirements for the property to be purchased with the loan under the program and must be:
- Located in BC
- A legal, self-contained, mortgageable residence, not a rental or recreational property
- The homebuyer’s principal residence for the first 5 years, and
- $750,000 or less
As an example, a first time buyer of a $500,000 property puts down 5 per cent ($25,000), with the buyer providing $12,500 and the BC Home Partnership Program providing $12,500. Assuming the current RBC five year rate of 2.9 per cent, the structure of the financing and repayment costs would be structured as below:
| $500,000 | Purchase Price |
| $ 25,000 | Down Payment |
| $475,000 | Base Mortgage Required |
| $ 18,287.50 | Non Traditional CMHC Premium (3.85 per cent) |
| $493,287.50 | Net 1st Mortgage |
| $ 12,500.00 | Net 2nd Mortgage |
| 1st mortgage at 2.9 per cent | 2nd mortgage at 3.4 per cent | Total monthly payments | |
| Years 1-5 | $2,304 | $0 | $2,304 |
| Years 6-10 | $2,304 | $72 | $2,376 |
Applications will be accepted as of January 16, 2017 up until March 31, 2020.
